If a bank has deposits of $800,000, total reserves equal $600,000, and the reserve ratio is equal to .25, what is the value of excess reserves?

Question

Quizplus · Accepted Answer

The reserve ratio is equal to reserves divided by deposits. rearranging this equation, we can solve for deposits: Deposits = Reserves / Reserve ratio. Plugging in the given values, we get: Deposits = 600,000 / 0.25 = $2,400,000. To find excess reserves, we subtract required reserves (which is deposits times the reserve ratio) from total reserves: Excess reserves = Total reserves - Required reserves = 600,000 - (2,400,000 x 0.25) = $600,000 - $600,000 = $0. Therefore, the value of excess reserves is $0.

If a Bank Has Deposits of $800,000, Total Reserves Equal